How to Calculate the True Cost of Home Ownership

Key takeaways

• Homeownership costs can include expenses incurred at the purchase time as well as costs that arise arising during ownership.

• Your costs of purchasing a home include the total cost of your mortgage, and closing costs.

• The total mortgage cost is the principal amount plus the total interest paid over the loan term.

• After purchasing a home, you will have to be prepared for additional costs such as property taxes, HOA dues, and those for repairs and maintenance.

Your home is likely one of the biggest purchases you will ever make, and your home equity is possibly a large percentage of your personal wealth. Despite your home’s large financial role in your life, you may be surprised to learn the true cost of home ownership.

Owning a home is a long-term commitment, and awareness of all the associated costs could help you make better decisions when it comes to real estate purchases, refinancing, using a home equity agreement (HEA) or other financial choices. Get your roadmap on the costs of home ownership below and become better prepared for future decision-making.

The initial cost of purchasing a home

When scanning for new homes on your favorite app or online database, you may think of the cost of the home as the price listed on the website. While this cost may give you a rough idea about what it could take to buy a house, it may not give you the proper context necessary to understand the actual price. The true cost of buying a home usually involves two parts: the cost of your mortgage, and other expenses related to closing on the home.

The true cost of a down payment and mortgage

Unless you are buying with cash, you will probably rely on a combination of a down payment and mortgage to fund the purchase of a house. Your down payment will usually be somewhere from 3% to 20%, depending on your financial situation and whether you are a first-time homebuyer. Subtracting your down payment from the purchase price will give you the amount you may need to borrow from a lender via a mortgage.

The mortgage cost, though, is not just the loan amount. Rather, it is the cost of the mortgage over the term of the loan. Knowing that cost requires understanding a few important mortgage terms:

Principal: The original loan amount.

Interest rate: The rate at which interest accrues on the principal of your mortgage, which is the cost you pay for borrowing funds. Interest rates can be either fixed or variable. Fixed interest rates are preset and do not change over the loan term. A variable rate can change based on current market conditions, and thereby can either increase or decrease the amount of interest on your mortgage.

Maturity date: When you must complete repayment of the loan (most mortgages have a term length of 15 or 30 years).

When evaluating the true cost of your mortgage, you might consider the amortization schedule of the loan to see what the total cost will be over time. In other words, you can calculate the total interest you will pay for the privilege of owning the home.

Other costs you can typically incur when buying a house

The costs of purchasing a home can involve other administrative fees and service expenses necessary to close the deal. These closing costs generally include:

• An appraisal to affirm the home’s value

• Title search and insurance to protect against issues about authority to sell and obtain rightful ownership

• Mortgage closing costs (including origination fees and underwriting costs)

• Prepayment of property taxes

• Fees for your real estate agents, attorney, or other professional help

• Escrow fees (for using an escrow company to hold and transfer funds at close)

Additional items that can affect the true cost of homeownership

Homeownership costs can extend beyond the purchase price and related expenses explained above. There will be other costs necessary to maintain the house’s condition and retain lawful possession of it.

Property taxes

Most homeowners have to pay state and local property taxes. The amount of property tax you may owe is usually a percentage of your home’s assessed value based on appraisals from your county assessor. Failing to pay your property taxes on time can result in tax liens on the home and the risk of foreclosure.

Homeowners’ association (HOA) dues

Many suburban and community developments require homeowners to belong to a homeowner association. These associations usually set rules for the maintenance and appearance of properties within the association, and are generally responsible for taking care of shared spaces (e.g., parks, community centers). HOA fees vary depending on the scope of the association and your location.

Homeowner’s insurance

Premiums for your homeowner’s insurance can be another item to consider in calculating the true cost of homeownership. This insurance may cover property damage from floods, fires and other natural disasters, and offer liability protection.

The costs of repairs and maintenance for your house

Finally, your cost of home ownership will include the price for repairs and necessary maintenance. Replacing or fixing appliances, roofing, painting, and updating other finishes as they age to retain the home’s value are all maintenance costs.

How a home equity agreement can help you with the costs of home ownership

If you are a current homeowner who has built up equity in your home, you may want to access that equity to cover some of those costs of home ownership. One option is a home equity agreement (HEA), which provides a lump sum from your available equity upfront in exchange for a portion of your home’s future value.

At Unlock Technologies, we offer HEAs with flexible income and credit score requirements. Using our online form, you can enter information about your home and see possible terms available to you. Additionally, our representatives are available to discuss the HEA process in further detail.

Contact Unlock Technologies today to see your home equity agreement options.